The Tax Strategy Group has sounded the alarm over the social insurance fund, warning it could leave a black hole of up to €335 billion by 2071.
Officials have warned the finance minister of the tax changes that will be needed to encourage an increase in the number of older workers.
The government is working on pension reforms that will keep the legal retirement age at 66, with higher pensions for those who choose to retire later.
Officials are also working on proposals to compare pensions and other social benefits to average wages.
Tax Strategy Group officials advised Minister Paschal Donohoe that due to the “rapidly aging” of the state’s population, tax changes need to be made to increase the number of older workers.
“Important structural reforms (such as raising the legal retirement age) and tax policy changes facilitating an increase in the participation of older workers and boosting productivity (such as tax credits for innovation-incentivizing research and development) will be needed to support this transition,” the tax strategy group said.
500,000 taxpayers and 10 multinationals represent a third of total tax revenue
The paper highlights how the state’s demographics are set to change “significantly” in the coming decades as Ireland becomes one of the “fastest-aging” EU member states.
The Social Insurance Fund, financed by PRSI contributions and responsible for pensions and social benefits, could rack up billions of euros in debt as early as 2030.
The department’s projections foresee a shortfall of more than 2.3 billion euros in 2030, reaching 13 billion euros by 2050.
Expected annual deficits are expected to increase steadily to around €21 billion in 2070.
However, the group warns that these deficits will worsen and leave a cumulative deficit of 335 billion euros by 2071.
The Tax Strategy Group also warns Minister Donohoe of the difficulty in funding pensions in the future.
“The main driver of the increase in overall planned spending is pension spending,” the group says.
“People are living longer than previous generations – and as a result the duration of state pension payments has increased steadily over time and will continue to do so.”
In 2030, the income of the Social Insurance Fund is expected to be €14.64 billion, with expenditures of €17 billion. Contributory state pension payments of €9.6 billion will leave a deficit of €2.36 billion.
In 1991, there were five people of working age per pensioner. This ratio is expected to be 3.5 to 1 by 2031 and 2.3 to 1 by 2051
However, the major pension reforms underway aim to improve the sustainability of the fund.
The number of retirees is expected to double by 2050 and tax levies will be lower because of the “scarcity” of jobs.
Officials point out that in 1991 there were five people of working age per retiree, but that ratio is expected to fall to 3.5:1 by 2031 and 2.3:1 by 2051.
The Pensions Commission had recommended a gradual increase in the retirement age to 67 between 2028 and 2031, before gradually increasing to 68 by 2039.
However, the government is set to maintain the official retirement age at 66, but allow workers to retire later in exchange for a higher pension.
Welfare Department officials are considering proposals to benchmark pensions, along with other social benefits, against the average industrial wage.
The group says that when setting future PRSI rates, “a range of cost-cutting and revenue-raising measures” will need to be considered.
The tax strategy group also raised serious concerns about the state’s overreliance on corporation tax, warning of ‘significant vulnerability’ in tax revenue and fiscal sustainability. public.
About 500,000 taxpayers and 10 multinationals represent just over a third of total tax revenue.
“A shock to the multinational sector could have an impact on income tax as well as corporate tax revenues, with significant implications for public finances,” the group says.
The “volatile” nature of the tax must be taken into account in determining whether or not the state should remain within the framework of the OECD, the group said.